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Jim Klinge
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Posted by on Dec 18, 2013 in Forecasts, Frenzy, Interest Rates/Loan Limits, Jim's Take on the Market | 9 comments | Print Print

Low Rates To Stay

santa hits brakes

The Fed’s taper announcment didn’t rile the markets, and so far it seems to be well received. How will impact home sales?

Here’s what Bill McBride said,

“Rates will be low for a long long time …”  As far as the “Appropriate  timing of policy firming”, the participants moved out a little with three  participants now seeing the first increase in 2016.

Buyers should be rejoicing at the thought of rates staying low for the next couple of years, and be very deliberate about what home they buy, and for how much.  Conditions are ideal for the wait-and-seers!!

But can buyers keep a hold of themselves?

In spite of every reason to stay patient, buyers will be tempted to jump at every decent deal they see.  The definition of ‘decent deal’ will likely be a moving target in 2014!


  1. Low rates are the new norm and will likely be with us until we stop negotiating with terrorists.


  2. Rates are almost 40% higher than a year ago. 3.36 v 4.87.

    There are enough dwelling units to meet demand for a decade. That does not mean anything as rates are divorced from old metrics.


  3. The market bottomed what, three years ago? I don’t get how getting massacred passes for being smart. It’s getting uncomfortable to watch. If you never, ever intend to buy or go long no matter what, just say so, which I suppose they are.


  4. Mortgage rates moved higher today after the Federal Reserve announced the first reduction in its purchases of Treasuries and MBS. The reduction in Treasuries hurts mortgage rates indirectly and the reduction in MBS (“mortgage-backed-securities”) hurt rates directly as these are the securities that mortgages ultimately turn into.

    This is a big deal and it has a big effect on the interest rate landscape. But there is good news, or at least a silver lining. The negative effects on today’s rate sheets are far less severe than they might have been. Part of the reason may have to do with how the Fed delivered the message. While they are tapering asset purchases, they also noted that the Fed Funds rate would remain low well past the time that unemployment hit 6.5% (their initial threshold for considering raising short term rates).

    While short term rates don’t have as much of an effect on mortgage rates as the asset purchases, they do help indirectly by keeping funding costs low for banks making loans. This helped the bond market (of which MBS are a part) avoid more abject damage from the news.

    In addition, bond markets have simply been coming to terms with this eventuality for weeks and months–all the way back to May 2013. Especially in the month of November, and again after the December 6th report on Employment, interest rates did a lot to get into position for this potential Tapering announcement, and thus avoided a sharper spike when it actually came.

    Almost miraculously, 4.625% remains the most prevalently quoted rate for ideal, conforming 30yr Fixed scenarios (best-execution).

    Loan Originator Perspectives

    “So the fed decided to taper today, cutting $10 billion per month in bonds starting in January. The market seemed to have priced that in as both treasuries and MBS, after some volatility, have settled near where they opened yesterday. Due to the volatility some lenders did reprice worse today. If you floated into today, I would continue to do so and see what tomorrow brings.” -Victor Burek, Open Mortgage

    “The cat is officially out of the bag. The slow, but steady improvement in the labor market and economy was enough to justify a decision to start a reduction in the MBS and TSY purchases by the Fed. The reduction in each was small enough that it helped prevent a large sell off many expected on an announcement of any “tapering.” Maybe this gives some direction and a relative timetable to investor that were curious about how and at what pace they would do this? All in all the recent 2.8-2.9 range on the 10 year is still in play and the longer term 2.75-3.0 is very contained at this point. The trend is still not the rate shoppers friend and I recommend locking any small bounce back or improvements in pricing you see in the short term.” -Stephen Chizmadia, Mortgage Advisor, American Capital Home Loans

    “Today’s Fed statement announced slight reductions in their MBS and Treasury purchases in light of a healing economy. While the long term effects are still unclear, MBS’ immediate movement was fairly contained towards slightly higher rates. Nice to see we didn’t suffer huge losses, but apparent we’re still in a rising rate environment. Hard to see much short term market motivation for lower rates.” -Ted Rood, Senior Originator, Wintrust Mortgage

    “Locking yesterday was a good move, but even with Taper announced today, rates aren’t taking off. Could have been worse so stay tuned. Stocks like it which is a head scratcher.” -Mike Owens, VP of Mortgage Lending Guaranteed Rate, Inc.

    Today’s Best-Execution Rates
    •30YR FIXED – 4.625%

    •FHA/VA – 4.25%

    •15 YEAR FIXED – 3.5%

    •5 YEAR ARMS – 3.0-3.50% depending on the lender


  5. does not mean anything as rates are divorced from old metrics.

    Same with incomes or employment. All that matters is how many rich people are left willing to buy.


  6. so if the stock market starts to tank will they start to print and buy more bonds again? seems like we have a stock market that is being propped up by tax payer dollars.


  7. does not mean anything as rates are divorced from old metrics. ~ RD

    Same with incomes or employment. All that matters is how many rich people are left willing to buy. ~ JtR

    You don’t have to sell the median house to the median buyer with 20% down. You just need a qualified buyer. Just… one.



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